The Minimum Wage: An Appeal to Ignorance

With midterm elections just six months away, primaries around the corner, and the economy still only barely picking up steam, issues like regulation, the sluggish labor market, and, above all, ObamaCare will likely continue to rank highly in national debates through 2014. Burdened with that irredeemable healthcare overhaul meant to secure President Obama’s legacy at the expense of the economy and his own party’s electoral support, Democratic strategists have changed horses several times already this year, citing alternately gender-based wage discrimination, the depletion of the American middle class, or—never to be left out of any Democratic strategy—race as the leading issue of the day. As the political world holds its breath to learn what Democrats’ summer collection of issues will bring, like a ham-fisted clothing line spitting out uninspired rehashes from days gone by, one issue in particular inadvertently displays the contempt for the American public of which strategists and politicians are capable: the debate over raising the minimum wage.

Even in the contentious world of the social sciences, economics is a field infamous for its fervent disagreement. There are few things on which economists as a profession seem to almost unanimously agree, even down to the basic theories and premises that guide their study: do prices adjust perfectly if left unhampered? are markets driven by demand or supply? should markets be treated as perfectly competitive for the purpose of establishing a baseline of understanding, or are the results of such inquiries too limited to a vacuum to be considered useful? what guides business cycles? etc.

Fortunately, one of those rare issues on which economists agree by a prodigiously wide margin is the minimum wage and the fact that it does precious little to help the poor. There is no theory or school of thought in economics that seeks to systematically deny this. As the minimum wage is raised, the cost of goods and services increases and puts upward pressure on the overall price level, effectively nullifying the initial wage increase. As a result, employers wind up hiring fewer workers and reducing the number they currently have, putting many out of work. When the minimum wage was first instituted in the 20th century, this was precisely the intent of its advocates. Racially motivated unions sought to keep unskilled black laborers out of the labor market by using their political clout to institute a minimum wage above the market price for such unskilled laborers, setting black workers back in their ability to learn marketable skills. A century later, unskilled workers– particularly unskilled black workers– are still marginalized by it in the same way (see here, here, and here). Considering that most Americans earning a minimum wage are not the primary income earners in their household, the group most affected by this is teenagers—high school kids out to save money for college or working summer jobs for extra cash to take the burden off of their parents and gain a little independence in the process.

So if having—and, by extension, increasing—a minimum wage does not improve the well being of low-income earners, increases the price level (thus raising their cost of living), and increases unemployment, why would politicians continue to advocate for it?

The answer is tragic. Such politicians and the advisors and strategists who champion the minimum wage, uninterested in the actual effects of the policies they advocate, are appealing to the economic ignorance of their constituents. They rely not upon substance but soundbites. They hold an issue to its most superficial levels of discussion and debate, choose their views on it by reference to what is most salable to Americans who are ignorant of the economic reality of the situation, and pursue their policies in flagrant disregard of the consequences faced by the people who they purport to help. They are snake oil salesman, and of the most dangerous sort.

More thorough arguments have been well made in many publications (including this one) as to why the minimum wage is economically and morally wrong and what to do about it (I particularly like this proposal to start by abolishing it for teenagers, who are most adversely affected by it). I do not claim that this brief writing even begins to fully address the subject. The point to be drawn here is rather how the minimum wage issue strikes at a much deeper question: how do the politicians elected to represent you make their appeals in seeking your support? Do they lean on their constituents’ ignorance of certain issues—economic, diplomatic, constitutional, or otherwise? Do they seek to inform as they advocate, bringing understanding back to the people who elected them and helping them to comprehend the intricacies of issues and legislative actions as they are debated, or do they enshroud the US Capitol like a mystery box from which views, proclamations, and actions flow forth without perceivable cause or reasoning? In seeking our support, do they rely upon the best or the worst among us and within us? It is an important question, as the qualities that are goaded by our leaders in seeking our support will be those most displayed on the floor of our House and Senate once that support has been won and they stand to represent us.

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